While renovation spending rose to a record at the end of June and likely will reach a new high by the end of 2019, a slowdown is on the horizon.
Americans spent $322 billion on remodeling and home repairs during the 12 months ending in June, a 6.8% jump from a year earlier, according to Harvard University’s Joint Center for Housing Studies. However, Chris Herbert, the center’s managing director, said he expects spending to slow next year.
“Declining home sales and home-building activity coupled with slower gains in permitting for improvement projects will put the brakes on remodeling growth,” Herbert said. “However, if falling mortgage interest rates continue to incentivize home sales, refinancing, and ultimately remodeling activity, the slowdown may soften some.”
For all of 2019, remodeling spending will probably total a record $331 billion, according to the index. By the end of 2020's second quarter, the furthest projection in the index, spending over the prior 12 months will probably total $323 billion.
The index had several revisions after the center recalculated the numbers using updated Census data, said Abbe Will, a research associate at the center. As a result, the amount of estimated spending in prior years was reduced.
Previously, LIRA estimated a homeowner improvement and repair market size of $336 billion in 2018 and projected that spending would grow to $353 billion in 2019. Using updated Census data for previously modeled estimates, the LIRA model indicates remodeling activity reached $313 billion in 2018 and projects spending will rise 5.8% in 2019.
Sales of existing homes will probably total 5.35 million in 2019, barely budging from last year’s 5.34 million, according to a forecast from Fannie Mae. In 2017, existing home sales reached a post-housing-bust high of 5.51 million, according to National Association of Realtors data.
Another gauge of the remodeling market that measures the confidence of building contractors who work on renovations showed a slight increase. Remodeling Market Index published by the National Association of Home Builders rose one index point to 55 in the second quarter of 2019. Since the second quarter of 2013, the RMI has been consistently above 50 — indicating that most remodelers report market activity is higher compared to the previous quarter. The index averages current remodeling activity and future indicators.
“The demand for remodeling continues to hold strong throughout the country,” said Tim Ellis, of NAHB. “However, the lack of skilled labor continues to be one of the largest roadblocks in the industry.”